Shop Direct Group, Shop Direct Home Shopping Limited, Reality Group Limited and Littlewoods Retail Limited v The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Mrs Justice Asplin |
| Neutral Citation | [2013] UKUT 0189 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,19 April 2013 |
| Date | 19 April 2013 |
| Published date | 01 December 2016 |
Corporation Tax: Effect of receipt by trader or successor to trade of sums in respect of VAT
repaid under s80 VATA to representative member of VAT group plus interest paid under s78
VATA. Question of beneficial ownership of sums received and whether “arising from the
trade”. Application of sections 103 and 106 ICTA 1988. Whether interest payments could be
characterised as arising under a “loan relationship” and amounted to a “money debt” for
purposes of section 100 FA 1996." [2013] UKUT 0189 (TCC)
APPEAL NUMBER: FTC/30-33/2012
IN THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Before :
MRS JUSTICE ASPLIN
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Between :
(1) SHOP DIRECT GROUP
(2) SHOP DIRECT HOME SHOPPING
LIMITED
(3) REALITY GROUP LIMITED
(4)
LITTLEWOODS RETAIL LIMITED
- and –
Appellants
THE COMMISSIONERS FOR HM REVENUE
AND CUSTOMS
Respondents
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David Goldberg QC and Michael Jones (instructed by Weil, Gotshal and Manges) for the
Appellants
Malcolm Gammie QC and Elizabeth Wilson (instructed by the General Counsel and
Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates: 19, 20 and 21 February 2013
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.............................
MRS JUSTICE ASPLIN
MRS JUSTICE ASPLIN
Approved Judgment Shopdirect v HMRC
Mrs Justice Asplin :
1. This is an appeal by Shop Direct Group (SDG), Shop Direct Home Shopping Limited
(SDHSL), Reality Group Limited (RGL), and Littlewoods Retail Limited (LRL),
(together referred to as the Appellants) from a decision of Judge Berner and Miss
O’Neill sitting in the First-tier Tribunal (Tax Chamber) (“FTT”), dated 14 February
2012 (see [2012] UKFTT 128 (TC)) (“the FTT Decision”). The case concerns the
corporation tax treatment of sums appearing in the Appellants’ accounts which are
equal in amount to repayments of overpaid VAT (“VRPs”) and interest arising on
those repayments (“the IPs”) together referred to as “the Sums”.
2. The FTT decided that each of the VRPs were trading receipts of existing trades or
trades which have discontinued and all were chargeable to corporation tax on the
Appellants under Schedule D Case I or VI as the case may be. Further, it decided that
all the IPs were properly assessable on the Appellants under Schedule D Case III.
Accordingly, the Appellants’ appeal against amendments made by the Commissioners
for Her Majesty’s Revenue and Customs (HMRC) to the corporation tax self
assessments of the Appellants for various accounting periods were dismissed.
3. There were eight VRPs and corresponding IPs save in respect of VRP5 in relation to
which there was no IP. The appeal relates to each of the VRPs and IPs save for such
parts of VRPs 4 and 6 and IPs 4 and 6 which are attributable to supplies made by six
companies when they were not members of a VAT group. The extent of those parts of
VRPs 4 and 6 and IPs 4 and 6 (the Excluded Parts) is not known or quantified at
present. The six companies were Brian Mills Limited, Burlington Warehouses
Limited, Janet Frazer Limited, John Moores Home Shopping Service Limited,
Littlewoods Warehouses Limited and Peter Craig Limited (the Six Companies). They
were received as a result of LRL and SDHSL respectively having a direct entitlement
to the repayments and interest rather than as payments received from the
representative member of a VAT group in their capacity as members of that group.
4. The Appellants appeal on six bases. It is said that the FTT erred in law:
i) in holding that the VRPs and, accordingly, the IPs arose from a trade carried
on by the Appellants which recorded the relevant sums (“the Sums”) in their
accounts (the Source argument);
ii) in determining that the Appellants had a beneficial entitlement to the VRPs
and IPs as if it were a question of fact instead of a question of law or a
question of mixed fact and law and as a consequence erred in concluding that
the VRPs and IPs were taxable (the Beneficial Entitlement argument);
MRS JUSTICE ASPLIN
Approved Judgment Shopdirect v HMRC
iii) in holding that SDG was liable to tax under section 103 Income and
Corporation Taxes Act 1988 (ICTA) in respect of those parts of VRP2 which
related to the trades of GUS plc, Kay & Company and Abound Ltd in
circumstances in which the FTT also held that the rights to those parts of
VRP2 had been retained by those companies (the SDG Retention argument);
iv) in construing the asset sale agreement between SDG and SDHSL dated 28th
October 2005 (the 2005 Agreement) as ineffective to transfer to the latter such
rights as SDG had to VRP2 and IP2 (the SDG Construction argument);
v) in construing section 103 ICTA as imposing a charge to tax on any person
receiving a particular sum regardless of whether that person formerly carried
on the trade to which the sum related (the s103 argument);
and lastly,
vi) in holding that IP6 was taxable on LRL as interest under Case III Schedule D
and in holding that the remainder of the IPs were payments of interest and in
holding that such interest fell within the loan relationship rules, (the Interest
arguments).
5. In essence, the Appellants contend that the effect of the original payment of VAT and
the consequent receipt of the VRPs and IPs through VAT groups, with the result that
only the representative member was entitled to the receipt of the VRPs and IPs, is that
the source of the Sums is not a trade, nor can it be established as a matter of law or
fact that the Appellants as recipients of the Sums as opposed to the VRPs and IPs
themselves were beneficially entitled to the Sums. Equally, in relation to the IPs they
contend that the IPs cannot be characterised in a way which renders them assessable
to corporation tax. Lastly, as a result of a number of transactions, in the case of VRPs
and IPs 2 and 5, the Appellants contend that the Sums cannot be treated and taxed as
post cessation receipts.
6. HMRC’s case in response is simple. It is said on their behalf that the FTT made
findings of fact which were open to it, and its decision that the VRPs and IPs thereon
were chargeable receipts of the respective Appellants was the inevitable result of
applying the correct legal test to those facts.
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